UK services PMI expected to decline coupled with escalating Middle East risks, GBP/USD under pressure near 1.3420

Reuters Finance App News — Ahead of Tuesday’s European session, markets are focused on the upcoming release of the UK March S&P Global Services PMI preliminary figure. The consensus expects the data to slightly decline from the previous 53.9 to 53.0, indicating a slight slowdown in service sector expansion. Although still above the expansion/contraction line of 50, the marginal weakening reflects signs of a cooling economic growth momentum.

In the current macro environment, PMI data mainly influence market expectations through minor adjustments rather than trend changes. If the data meets expectations, markets may maintain a view of “moderate growth” for the UK economy, but it is unlikely to provide a clear boost to the pound. Conversely, under the influence of global risk sentiment, the pound is more susceptible to external factors.

Recently, tensions in the Middle East have become the main driver of market sentiment. U.S. President Donald Trump’s comments about a possible agreement with Iran were quickly denied, and there remains a risk of further escalation in regional conflicts. Markets worry that energy infrastructure could be targeted, pushing oil prices higher and increasing inflation pressures. This uncertainty drives funds into U.S. dollar assets, strengthening its safe-haven appeal and putting pressure on the pound.

From a monetary policy perspective, the Bank of England kept interest rates steady at 3.75%, in line with market expectations. With rising oil prices increasing inflation risks, markets are beginning to anticipate that the BOE may maintain higher interest rates for a longer period, with the possibility of further hikes in 2026. This outlook provides medium- to long-term support for the pound, but in the short term, it is unlikely to offset the impact of risk aversion.

Additionally, market focus is gradually shifting to upcoming UK CPI and retail sales data. These figures will offer more direct insights into inflation trends and consumer conditions, influencing expectations of the BOE’s policy stance. If inflation continues to exceed forecasts, it could reinforce tightening expectations and support the pound.

Meanwhile, the U.S. dollar remains strong. As market expectations of Fed rate cuts diminish, U.S. Treasury yields stay high, boosting the dollar’s attractiveness. Driven by geopolitical risks and rate outlooks, the dollar remains robust, exerting downward pressure on GBP/USD.

Technically, the daily chart shows that GBP/USD has entered a correction phase after recent gains, with prices gradually retreating toward key moving averages. Resistance is seen around 1.3446, near the 50-day exponential moving average, coinciding with the 1.3450 round number, creating resistance pressure. If the price cannot break through this zone effectively, it is likely to remain in a consolidation or weak trend in the short term.

On the 4-hour chart, the price shows a sideways consolidation, with short-term moving averages flattening, indicating a balance between bulls and bears. Support is at 1.3381, near the 9-period moving average. A break below this level could trigger further declines toward around 1.3330. The MACD indicator is close to zero, suggesting the short-term trend remains uncertain but generally weak.

Overall, GBP/USD is currently in a “correction after a medium-term rally.” On the daily chart, the key resistance is around 1.3450; without a breakout, the upward trend cannot resume. The 4-hour chart indicates short-term weakness, with support at 1.3380 acting as a key level. Under risk sentiment dominance, the price is likely to remain weak in the near term, with further direction depending on PMI and upcoming inflation data.

Summary

The current GBP movement is mainly influenced by external risks and domestic economic data. Middle East tensions boost safe-haven demand, keeping the dollar strong, while marginal declines in UK economic data limit the pound’s rebound potential. Although inflation expectations support a hawkish stance from the BOE, short-term market sentiment remains risk-averse. Future trends will depend on geopolitical developments and UK inflation data, with investors watching key technical levels and macroeconomic changes.

(Editor: Wang Zhiqiang HF013)

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